Securities and Exchange Commission Chairman Dr. Nalaka Godahewa will be intensely watched and the outcomes of the 17 investigations into market offences will be monitored closely as well, member of the Parliamentary Committee on Public Enterprises (COPE), opposition MP Ravi Karunanayake said yesterday.

"We will not allow Dr. Godahewa to gloss over the ongoing investigations and we will try to summon him before the COPE along with former Chairpersons Ms. Indrani Sugathadasa and Thilak Karunaratne. I have already tabled a motion in Parliament to summon the two former heads of the SEC and the matter would be taken up on September 15," Karunanayake said.

"We need to expose the stock exchange mafia. Not only that, we believe the Central Bank was behind the controversial NSB-TFC deal and we want to inquire into this as well. Ever since the Gold Quest pyramid scheme, the investigation of which was swept under the carpet, we have had too many shady deals that need to be unravelled," the MP said speaking to The Island Financial Review.

COPE Chairman DEW Gunasekera had earlier told The Island Financial Review that the committee was convinced the existence of a stock exchange mafia and that it would stand behind the SEC in its efforts to crack it down.

Former SEC Chairman Thilak Karunaratne resigned last month citing pressure from a group of well connected investors and their crony brokers with the government not encouraging the SEC’s clean-up of the stock exchange; less than a year ago Ms. Indrani Sugathadasa resigned for the same reasons.

Market sources said it was obvious that pumping-and-dumping were rampant during the bourse’s boom in 2009/2010. The SEC began investigating these shady transactions.

However, the market slumped during the latter half of 2011 and early 2012 on sluggish economic indicators, with liquidity tightening and interest rates rising. But those being investigated by the SEC lobbied the government that the slump in the bourse was caused by a fear psychosis created by the SEC. They argued that a slump in the bourse was a bad mark on the government.

"This probably explains the manner in which the government treated the SEC; allowing two chairpersons to resign within a year of each other. This or either, personal relationships are strong," an analyst said.

Dr. Godahewa told this newspaper that he would continue with the investigations begun by his predecessor Karunaratne.

Given Dr. Godahewa’s links with controversial investor Dilith Jayaweera, whose companies have received four to five letters of inquiry from the SEC, he would probably now be the most intently watched SEC Chairman to-date after his predecessor revealed that 17 investigations were ongoing, which means 17 credible outcomes would be expected, brokers and market analysts point out.

Sentiments derived from the recent changes to the SEC board and stabilising interest rates have caused a turnaround at the Colombo Stock Exchange, but some brokers are warning clients to stay clear of the herd and avoid getting sucked into pump-and-dump activities as some investors seek to recoup huge losses. Sticking to fundamentally sound stocks would help investors make healthier gains with long term prospects looking bright for the economy. Brokers are of the view that should interest rates decline, the bourse could sustain its upward trend.